The NFTFi Ecosystem
Loading NFTFi Summer, Soon^TM. Based on @alexgedevani honest work. I've created a map for the NFTFi ecosystem. With 300+ projects on the list across different L1s/L2s and NFT verticals. I'm boooolish the future NFTFi sector. There are a LOT more projects that I haven't covered.
First of all, some numbers. Within the sample size, the NFT marketplace & liquidity protocol accounts for 26% of the pool (incl. fractionalization). Seconded by NFT Analytics & Insights ~ 14.5%, followed by NFT lending/borrowing ~14% (incl. BNPL), NFTFi/derivatives ~ 7.1%.
Other verticles such as NFT portfolio mgt & wallet, aggregator, NFT hardware/IRL display, NFT Pricing, Infrastructure (storage, search, index), NFT curation/gallery, content creation, NFT collecting/multiplayer made up the rest of majority.
NFT Lending/Borrowing Protocols
Liquidity is fragmented with many different implementations, yet TAM for the current NFT market is still relatively small but growing fast. With @Uniswap in talks with 7 NFT lending protocols which makes me thinking.
NFT lending/borrowing totally makes sense, but the current TAM is relatively small in the sense that they can be treated as just normal long-tail tokens from a liquidity/trading aspect rather than an entirely new asset class. Ofc, fundamentally, NFTs are different to tokens.
We've been through #DeFi summer where we've seen how degen whales were using long-tail asset lending/borrowing protocols to exit their positions due to better exit pricing and potential conceiving exit intention to the market.
But what about unlocking capital and creating the NFT money market lego? Surely it is needed, however, I'd be more interested to see NFT lending/borrowing protocols that extend composability with other protocols rather than aiming to unlock capital.
At the end of the day, to bootstrap liquidity, incentives are still needed, especially for long-tail assets which I do expect to see that we potentially bring back the yield farming activities on NFTs lending borrowing protocols.
Buy Now, Pay Later
Onchain BNPL as a standalone protocol would be hard to survive, and the target market is a bit too niche, especially without a comprehensive credit rating infrastructure, but I do see this could be an interesting value-added case tagged along with e.g. Soulbound token.
However, some shitpost that I saw on Linkedin today, "Launching a new startup solving BNPL debt issues called Afterafterpay, where you can buy now and pay later, later" does provide some concerning aspects around the BNPL scheme in general.
There are some PMF mismatches, Degens !need on-chain BNPL or else would be used for arbs/liquidation or treated as a call option on the NFT. Non-crypto populations need to firstly be onboarded to DeFi/NFTFi; the cost is generally too high.
However, centralized BNPL or BNPL as part of the bigger product offering could make sense. For example, @Shopify already integrated with NFT gated function; what's stopping them from integrating the NFT BNPL scheme and offering these to non-crypto native people?
NFT Pricing
For lending/borrowing protocols to work well, we also need a well-functioned oracle. We have seen liquidity protocols such as @NFTX_ @sudoswap etc leveraging the AMM bonding curve design to drive more efficient pricing in the ecosystem.
Alternatively, I've seen AI/statistical/ML analysis pricing models on the rise recently. I can surely see that e.g. @opensea @MagicEden & auction houses to integrate for analytic purposes and provide some reference points to the market participants.
These can assist in improving the blue-chip NFTs price estimate, however, the backend algos need to be constantly adjusted to look out for better model fit as the NFT market is still evolving rapidly.
I'd be cautious in using AI/statistical/ML analysis pricing model as one of the primary oracles. The estimated outputs could be easily skewed by future yield farming activities and liquidation as an exit strategy. Sufficient NFT spot liquidity > accurate pricing in long-tails.
Fractionalization
The way I think of NFT fractionalization is it does have its place; however rather niche. Generally speaking, if you bootstrap liquidity via fractionalization, this can lead to inflated FDV for that particular collection/item. It's the circulating + locking up game.
NFT Options
There are also builders building NFT derivatives such as perps or option products. However, I'm generally on the fence about on-chain derivatives, not saying we don't need these but for it to work well we need to have sufficient spot liquidity first.
NFT options are a bit too early to tell but some interesting ideas floating around, I can see are more for the industry to explore NFTFi primitives and potentially integrate on the backend etc i.e. with vaults. Liquidity bootstrapping would be difficult.
And more!
Giga excited to see more different designs, implementations, and ideas around NFTFi. There are a LOT more to uncover, I haven't touched on curation, music, photography, metaverse, reputation/identity or debate e.g. creator first vs liquidity first yet.
For NFTFi projects that want to get on the list, ping @alexgedevani or @0xminion, and we will try to put you on the list where we see fit. More than happy to chat on NFTs/NFTFi in general, and talk about the current issues and the future. Booolish.
